How the mortgage amortization calculator works: the payment formula
A fixed-rate mortgage is amortized: you pay the same principal-and-interest amount every month, but the mix inside that payment changes. Interest is charged on whatever you still owe, so early payments are mostly interest and later payments are mostly principal. The payment that retires the loan to exactly zero on schedule comes from the standard amortization formula:
- M
- Monthly principal-and-interest payment
- P
- Principal: the home price minus your down payment
- r
- Monthly interest rate: the annual rate divided by 12 (6.5% becomes 0.065 ÷ 12 = 0.0054167)
- n
- Number of monthly payments: the term in years × 12 (30 years is 360 payments)
Step by step for a $300,000, 30-year loan at 6.5%
- Convert the annual rate to a monthly rate: r = 0.065 ÷ 12 = 0.0054167.
- Compound it over the term: (1 + r)360 = 6.9918. That factor is how much one dollar would grow if it went unpaid for 30 years.
- Plug in: M = 300,000 × 0.0054167 × 6.9918 ÷ (6.9918 − 1) = $1,896.20 a month.
- Split each payment. Month one's interest is the balance times r: 300,000 × 0.0054167 = $1,625.00. The other $271.20 repays principal, leaving $299,728.80. Month two repeats the calculation on the lower balance, and so on.
The calculator rounds each month's interest to the cent, the way lenders post it, and lets the final payment absorb the leftover cents. That is why the last payment in the schedule is usually a few dollars different from the others and why the balance ends at exactly $0.00.
What gets added on top: taxes, insurance, PMI and HOA dues
Most lenders collect property taxes and homeowners insurance through an escrow account, so the check you actually write is often called PITI: principal, interest, taxes and insurance. The calculator adds:
- Property tax: the annual rate times the home price, divided by 12. Effective rates vary widely by county, so use the rate from the listing or your local assessor.
- Homeowners insurance: your annual premium divided by 12.
- Private mortgage insurance (PMI): on a conventional loan with less than 20% down, the annual PMI rate times the original loan amount, divided by 12. Federal law requires PMI to end automatically once the balance is scheduled to reach 78% of the home's original value, so the calculator stops charging it when your balance falls to 78% of the price.
- HOA dues: paid to your homeowners association rather than the lender, but part of your monthly housing cost all the same.
Worked example: $300,000 at 6.5% vs. 7.0%
Rate shopping matters more than most buyers expect. Here is the same $300,000, 30-year loan at two rates half a point apart, computed with the schedule above.
| 6.5% | 7.0% | Difference | |
|---|---|---|---|
| Monthly principal & interest | $1,896.20 | $1,995.91 | $99.71 |
| Interest in the first payment | $1,625.00 | $1,750.00 | $125.00 |
| Total interest over 30 years | $382,636.71 | $418,524.05 | $35,887.34 |
| Total of all 360 payments | $682,636.71 | $718,524.05 | $35,887.34 |
Half a percentage point adds $99.71 to every monthly payment and $35,887.34 of interest over the life of the loan. Even at 6.5%, the borrower repays the $300,000 plus $382,636.71 in interest, more than the amount borrowed. In the first month, 85.7% of the payment is interest.
Turning the loan into a full housing payment
Suppose the $300,000 loan finances a $375,000 home with 20% down, property tax of 1.1% and insurance of $1,800 a year. Taxes add $343.75 and insurance $150.00, for a total monthly payment of $2,389.95. There is no PMI because the loan is exactly 80% of the price.
Put 10% down on the same home instead and you borrow $337,500.00. Principal and interest rise to $2,133.23, and PMI at 0.5% a year adds $140.63 a month, for a total of $2,767.61. PMI stays on for 109 payments (9 years 1 month) and costs $15,328.67 before it drops off.
What $200 a month extra does
Go back to the 6.5% loan and add $200 to every payment, applied to principal. The loan is paid off in 277 payments instead of 360, which is 6 years 11 months sooner, and total interest falls to $279,186.52. That saves $103,450.19, far more than the $55,400.00 of extra payments, because every extra dollar stops accruing 6.5% interest for the rest of the loan.
When paying extra on a mortgage makes sense
An extra principal payment earns a guaranteed return equal to your mortgage rate, with no market risk. That is a good deal, but it is not always the best use of the next dollar, because money sent to principal is hard to get back without selling or borrowing against the house. Work through the situations below in order.
| Your situation | Usually the better move | Why |
|---|---|---|
| Carrying credit card balances | Pay the cards first | Card APRs are typically several times a mortgage rate. |
| Less than three months of expenses saved | Build an emergency fund | Home equity is not cash; a job loss can still mean a missed payment. |
| Not getting the full 401(k) match | Contribute up to the match | An employer match is an immediate return no prepayment can beat. |
| Paying PMI | Prepay until you reach 20% equity | Removing PMI adds its cost to the return on every extra dollar. |
| Rate above what safe savings pay | Extra principal is reasonable | You earn your mortgage rate, risk-free. |
| Very low fixed rate | Saving or investing may come out ahead | A high-yield account or index fund can out-earn a low rate. |
Ways to pay extra
- A fixed amount each month. Enter it in the calculator to see the payoff date move. Even small amounts compound because they reduce every future interest charge.
- Biweekly payments. Paying half your payment every two weeks produces 26 half-payments, or 13 full payments a year instead of 12. You get the same effect by adding one-twelfth of a payment to each monthly payment, without signing up for a program that charges a fee.
- Lump sums and recasting. A bonus or tax refund can go straight to principal. Some servicers will then recast the loan, re-amortizing the lower balance over the remaining term to reduce your required payment, usually for a modest fee.
Before you start, confirm with your servicer that extra money is applied to principal rather than held for next month's payment, and check your note for a prepayment penalty. Federal rules ban prepayment penalties on many mortgages and limit them to the first three years on the rest. If your interest rate is well above today's rates, compare prepaying with refinancing; and if you are deciding what to do with cash, our high-yield savings calculator shows what the same money would earn in the bank.
The bottom line
Mortgage amortization front-loads interest: on a $300,000, 30-year loan at 6.5%, 85.7% of the first $1,896.20 payment is interest. The rate matters most. Half a point adds $99.71 a month and $35,887.34 over the life of the loan, while $200 a month of extra principal saves $103,450.19.
Enter your own loan in the mortgage amortization calculator above, check the month PMI ends, and download the schedule before you decide whether extra payments beat a larger emergency fund or investing the difference.
Frequently asked questions
How is a mortgage payment with taxes and insurance calculated?
Start with the principal-and-interest payment from the amortization formula, M = P × r(1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan amount, r is the annual rate divided by 12 and n is the number of monthly payments. Then add one-twelfth of your annual property tax and homeowners insurance, the monthly PMI premium if you put less than 20% down, and any HOA dues. For a $300,000 loan at 6.5% over 30 years on a $375,000 home with 1.1% property tax and $1,800 a year of insurance, that is $1,896.20 + $343.75 + $150.00 = $2,389.95 a month.
When does PMI come off?
On a conventional loan, you can ask your lender to cancel PMI once your balance reaches 80% of the home's original value, provided you have a good payment history and meet the lender's other requirements. If you don't ask, the lender must end it automatically when your balance is scheduled to reach 78% of the original value and you are current on payments. Extra principal payments get you to these thresholds sooner. FHA loans work differently: their mortgage insurance premium often lasts for the life of the loan when the down payment is under 10%.
How much does PMI cost?
PMI premiums depend mainly on your credit score and down payment. Annual rates of roughly 0.3% to 1.5% of the loan amount are common. At 0.5%, PMI on a $337,500.00 loan is $140.63 a month. Ask lenders for a quote with your actual credit profile and enter that rate in the calculator.
Why does most of my early mortgage payment go to interest?
Interest is charged on the balance you still owe, and the balance is largest at the start. On a $300,000 loan at 6.5%, the first payment of $1,896.20 includes $1,625.00 of interest and only $271.20 of principal. Each payment lowers the balance a little, so the interest portion shrinks and the principal portion grows until the loan is repaid.
How much do extra mortgage payments save?
It depends on the rate, the amount and how early you start. Adding $200 a month to a $300,000, 30-year loan at 6.5% pays it off in 277 payments instead of 360 and saves $103,450.19 in interest. Enter your own loan and extra amount in the calculator to see the exact payoff date and savings, and download the extra payment amortization schedule to see each month's new balance.
Are biweekly mortgage payments worth it?
Biweekly payments work because 26 half-payments equal 13 full payments a year, one more than the usual 12, and that extra payment goes to principal. You can get the same result for free by adding one-twelfth of your monthly payment as extra principal each month. Avoid third-party biweekly programs that charge enrollment or processing fees.
What is an amortization schedule?
An amortization schedule is a table listing every payment on a loan with its date, how much goes to interest, how much goes to principal and the balance left afterwards. It lets you see your equity build over time and measure the effect of extra payments, and an amortization schedule with PMI, like the one on this page, also shows the month the premium ends. You can download the full schedule as a CSV file.
Sources and further reading
- When can I remove private mortgage insurance (PMI) from my loan? (opens in a new tab), Consumer Financial Protection Bureau
- What is private mortgage insurance? (opens in a new tab), Consumer Financial Protection Bureau
- What is the difference between a mortgage interest rate and an APR? (opens in a new tab), Consumer Financial Protection Bureau
- What is a prepayment penalty? (opens in a new tab), Consumer Financial Protection Bureau
- Buying a house: tools and resources (opens in a new tab), Consumer Financial Protection Bureau
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